{"id":24978,"date":"2017-11-15T18:56:35","date_gmt":"2017-11-15T23:56:35","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/reacting-to-rising-isolationist-sentiments-with-production-overseas\/"},"modified":"2017-11-15T18:56:35","modified_gmt":"2017-11-15T23:56:35","slug":"reacting-to-rising-isolationist-sentiments-with-production-overseas","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/reacting-to-rising-isolationist-sentiments-with-production-overseas\/","title":{"rendered":"Reacting to rising isolationist sentiments with production overseas"},"content":{"rendered":"

As the sixth largest global automaker[1]<\/a>, Hyundai relies on demand overseas for over 80% of its sales[2]<\/a>. In many of its export countries such as the US, UK, and China, rising isolationist sentiment has the potential to impact trade agreements such as NAFTA[3]<\/a> and the new EU deals resulting from Brexit[4]<\/a>. For Hyundai, which operates multiple production operations overseas, changes to such agreements can have a drastic impact on its business.<\/p>\n

For example, Kia motors, one of Hyundai\u2019s brands, just opened a new factory in Mexico. Since over 80% of the plant capacity was intended for exports outside of Mexico (with US as a primary market)[5]<\/a>, changes in NAFTA negotiations can be of large concern[6]<\/a>.<\/p>\n

In Asia, with North Korea\u2019s nuclear activity on the rise, a protectionist response has resulted in the placement of the US\u2019s anti-missile system in South Korea. China\u2019s worries over the potential usage of the system\u2019s radar capabilities on Chinese territories has resulted in a backlash against Hyundai sales[7]<\/a>. The drop in sales made Hyundai unable to pay a supplier on time, resulting in suspended production at Hyundai\u2019s Chinese factories as the vendor refused to supply parts[8]<\/a>.<\/p>\n

In reaction to this recent rise of such political movements, Hyundai has shown commitment to its businesses in markets with strong demand. In the US, given Trump\u2019s promise to spur job creation, Hyundai committed to increasing its investment in existing factories by $1 billion[9]<\/a>. Hyundai is also considering switching the production of some of its models from South Korean plants to the factories in Alabama[10]<\/a>. Likewise in China, Hyundai opened its fourth plant and is expected to open another plant in Chongqing this year[11]<\/a>.<\/p>\n

In addition to these actions, Hyundai could take further steps to mitigate the risks associated with isolationist political movements.<\/p>\n

In the short term, Hyundai could switch more of its suppliers for each factory to local ones instead using Korean suppliers, as is currently done in China[12]<\/a>. This would not only result in cheaper costs, but also tie the local economy to Hyundai\u2019s business. Governments would be more hesitant to act on policies negatively impacting Hyundai, and as a result, the local suppliers that would be dependent on Hyundai for business.<\/p>\n

In the long run, Hyundai should map its current plant capacities to the expected demand across the world. Where isolationist policies are expected to increase tariffs as in the US and China, Hyundai should limit its manufacturing capacity to serve just the local demand. At the same time, Hyundai should consider alternative manufacturing plants for any other markets that are currently served by US or Chinese plants. For example, with the NAFTA negotiations potentially re-instituting tariffs between the US and Canada[13]<\/a>, Hyundai may consider sourcing its Canadian demand from the new Mexican manufacturing plant.<\/p>\n

However, concerns remain around an extreme commitment to overseas production: Are there implications to committing resources overseas, such as a potential for protectionist South Korean government policies in response? How should Hyundai compete with local auto players in countries where consumers carry protectionist sentiment?<\/p>\n

Word count: 787<\/p>\n

 <\/p>\n

Endnotes<\/strong><\/p>\n

[1]<\/a> Bertel Schmitt, \u201cTop 10 Global Automakers: Daimler Out, PSA In, Ford Up, Hyundai-Kia Down\u201d, Forbes, July 7, 2017, https:\/\/www.forbes.com\/sites\/bertelschmitt\/2017\/07\/07\/top-10-global-automakers-daimler-out-psa-in-ford-up-hyundai-kia-down\/#1b12902121b8<\/a>, accessed November 2017<\/p>\n

[2]<\/a> Yonhap, \u201cHyundai Motor Aug. sales fall 6% on weak overseas demand\u201d, The Korea Herald, September 1, 2017, http:\/\/www.koreaherald.com\/view.php?ud=20170901000675<\/a>, accessed November 2017<\/p>\n

<\/a>\u00a0[3] Mauro F. Guillen, \u201cNAFTA created thousands of good American jobs \u2013 just not for Trump\u2019s Rust Belt supporters\u201d, Quartz, February 22, 2017, https:\/\/qz.com\/914363\/nafta-created-thousands-of-good-american-jobs-just-not-for-trumps-rust-belt-supporters\/<\/a>, accessed November 2017<\/p>\n

<\/a>\u00a0[4] Silvia Amaro, \u201cThe UK will not \u2018cut and paste\u2019 EU trade deals after Brexit, says trade chief\u201d, CNBC, October 3, 2017, https:\/\/www.cnbc.com\/2017\/10\/03\/brexit-the-uk-will-not-cut-and-paste-eu-trade-deals-liam-fox-says.html<\/a>, accessed November 2017<\/p>\n

[5]<\/a> Matthew Rocco, \u201cTrump Effect? GM, Hyundai Pour Money Into America\u201d, FOX Business, January 17, 2017, http:\/\/www.foxbusiness.com\/markets\/2017\/01\/17\/general-motors-to-announce-1b-in-u-s-investment.html<\/a>, accessed November 2017<\/p>\n

[6]<\/a> Sharay Angulo, Dave Graham, \u201cMexico to respond to tough U.S. proposals at fifth NAFTA round\u201d, Reuters, November 14, 2017, http:\/\/www.reuters.com\/article\/us-trade-nafta\/mexico-to-respond-to-tough-u-s-proposals-at-fifth-nafta-round-idUSKBN1DE1PQ?il=0<\/a>, accessed November 2017<\/p>\n

[7]<\/a> Youkyung Lee, \u201cHyundai Motor\u2019s China plant halts again on supply disruption\u201d, FOX Business, September 4, 2017, http:\/\/www.foxbusiness.com\/markets\/2017\/09\/04\/hyundai-motors-china-plant-halts-again-on-supply-disruption.html<\/a>, accessed November 2017<\/p>\n

[8]<\/a> Shelly Banjo, \u201cIt\u2019s Just Business, Hyundai\u201d, BloombergGladfly, August 30, 2017, https:\/\/www.bloomberg.com\/gadfly\/articles\/2017-08-30\/don-t-blame-the-missiles-for-hyundai-s-china-shutdown<\/a>, accessed November 2017<\/p>\n

[9]<\/a> Matthew Rocco, \u201cTrump Effect? GM, Hyundai Pour Money Into America\u201d, FOX Business, January 17, 2017, http:\/\/www.foxbusiness.com\/markets\/2017\/01\/17\/general-motors-to-announce-1b-in-u-s-investment.html<\/a>, accessed November 2017<\/p>\n

[10]<\/a> Reuters Staff, \u201cHyundai considers adding SUVs, pickup to U.S. factory: Seoul Economic Daily\u201d, Reuters, November 9, 2017, http:\/\/www.reuters.com\/article\/us-hyundai-motor-usa-production\/hyundai-considers-adding-suvs-pickup-to-u-s-factory-seoul-economic-daily-idUSKBN1DA070<\/a>, accessed November 2017<\/p>\n

[11]<\/a> Bloomberg News, \u201cHyundai Is Caught in a Perfect Storm in China\u201d, Bloomberg Politics, April 24, 2017, https:\/\/www.bloomberg.com\/news\/articles\/2017-04-24\/hyundai-faces-perfect-storm-of-china-woes-from-suvs-to-missiles<\/a>, accessed November 2017<\/p>\n

[12]<\/a> Norihiko Shirouzu, Hyunjoo Jin, \u201cUnder pressure, Hyundai clashes with China partner over suppliers- sources\u201d, Reuters, September 5, 2017, https:\/\/www.reuters.com\/article\/hyundai-china-suppliers\/under-pressure-hyundai-clashes-with-china-partner-over-suppliers-sources-idUSL8N1LM0K6<\/a>, accessed November 2017<\/p>\n

[13]<\/a> Leslie Shaffer, \u201cThis automaker may benefit from TPP\u2019s demise. Hint: It\u2019s not American\u201d, CNBC, January 25, 2017, https:\/\/www.cnbc.com\/2017\/01\/25\/hyundai-motor-may-be-an-unexpected-beneficiary-of-trump-move-to-kill-tpp.html<\/a>, accessed November 2017<\/p>\n

<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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